Ladder Distributors
The stockholders' equity section of the December 31, 2019, balance sheet is provided below:
Assume that all of the 20,000 shares of stock that was issued as of December 31, 2019, was issued for $42 per share. On March 1, 2020, the company reacquired 4,000 shares of its common stock for $50 per share.
-Refer to Ladder Distributors. Suppose the company reissued 1,000 shares of its treasury stock on June 1, 2020, for $44 each. Which of the following is true regarding the entry required to record this transaction?

Question

Ladder Distributors
The stockholders' equity section of the December 31, 2019, balance sheet is provided below:
  Assume that all of the 20,000 shares of stock that was issued as of December 31, 2019, was issued for $42 per share. On March 1, 2020, the company reacquired 4,000 shares of its common stock for $50 per share.
-Refer to Ladder Distributors. Suppose the company reissued 1,000 shares of its treasury stock on June 1, 2020, for $44 each. Which of the following is true regarding the entry required to record this transaction?

Quizplus · Accepted Answer

To answer this question, we need to understand the accounting entries for the purchase and reissuance of treasury stock. When Ladder Distributors reacquired 4,000 shares of its common stock for $50 per share on March 1, 2020, the entry would have been:
Debit: Treasury Stock (4,000 shares x $50) = $200,000
Credit: Cash = $200,000
This entry reduces the cash and increases the treasury stock, which is a contra equity account.
Now, when the company reissues 1,000 shares of its treasury stock on June 1, 2020, for $44 each, the entry would be:
Debit: Cash (1,000 shares x $44) = $44,000
Credit: Treasury Stock (1,000 shares x $50) = $50,000
Since the shares were reissued at a price ($44) that is less than the price at which they were reacquired ($50), the difference needs to be accounted for. The $6,000 difference (1,000 shares x ($50 - $44)) is credited to an equity account. However, the question does not provide information about the company's balance in the "Paid-in Capital from Treasury Stock" account, which would typically be used first before affecting retained earnings.
If there is a sufficient balance in the "Paid-in Capital from Treasury Stock" account, the entry would be:
Credit: Paid-in Capital from Treasury Stock = $6,000
If there is not enough balance in the "Paid-in Capital from Treasury Stock" account, then the remaining amount would be credited to Retained Earnings.
Given the options provided in the question, the correct answer would be:
d. A debit to paid-in capital from treasury stock transactions is required for $6,000.
This assumes that there is a sufficient balance in the "Paid-in Capital from Treasury Stock" account to absorb the $6,000. If this were not the case, then a credit to retained earnings would be required for the amount that cannot be covered by the paid-in capital from treasury stock transactions. However, since the question does not provide details on the balance of the paid-in capital from treasury stock account, we would go with the most likely scenario, which is option (d).

Ladder Distributors The Stockholders' Equity Section of the December 31, 2019, Balance